Dividend can be distributed from profits of the company or reserves of the company.
Share premium is a non-distributable reserve. The company can use it only for the purposes that are defined in the bylaws of that company. It cannot be used for purposes not defined in the company’s laws. Usually the companies are not allowed to use the share premium for payment of dividends to the shareholders and to set off the operating losses. Share premium can usually be used for paying equity related expenses such as underwriter’s fees. It can also be used to issue bonus shares to the shareholders. The costs and expenses relating to issuance of new shares can also be paid from the share premium.
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